It is doubtless a positive to see that the Lloyds Banking Group plc (LON:LLOY) share price has gained some 44% in the last three months. But over the last half decade, the stock has not performed well. In fact, the share price is down 53%, which falls well short of the return you could get by buying an index fund.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Looking back five years, both Lloyds Banking Group's share price and EPS declined; the latter at a rate of 9.4% per year. This reduction in EPS is less than the 14% annual reduction in the share price. This implies that the market is more cautious about the business these days.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Lloyds Banking Group's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Lloyds Banking Group shareholders, and that cash payout explains why its total shareholder loss of 42%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 7.1% in the twelve months, Lloyds Banking Group shareholders did even worse, losing 44%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Lloyds Banking Group has 4 warning signs we think you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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